I’ve been getting a lot of updates lately from operators I’ve invested with. And the tone has shifted. Not dramatically, but enough to notice. Distributions paused here. A refinance that didn’t go through there. Language that used to feel confident now feels careful.
And here’s the thing. The properties are fine. Occupancy is solid. The markets are doing okay. On paper, nothing about the actual assets looks broken.
But the deals are under stress.
If you’ve been investing passively in real estate over the past few years, there’s a decent chance you’ve gotten a version of that same email. Maybe it was a capital call. Maybe it was a timeline extension. Maybe it was just a shift in tone that made your stomach tighten a little.
And if you’re like most physicians I talk to, the question running through your head is: I thought this was a good deal. What happened?
I’ve been sitting with that question a lot lately. Not because I have some magic insight, but because I think the answer is simpler than people realize, and also more important to understand than most of the noise out there right now.
Here’s what I’ve found. Most of the deals that are struggling right now aren’t struggling because the property is bad. They’re struggling because of the debt.
That distinction matters more than almost anything else in this cycle.
Disclaimer: This article is for informational and educational purposes only and does not constitute financial, legal, or investment advice. Any investment involves risk, and you should consult your financial advisor, attorney, or CPA before making any investment decisions. Past performance is not indicative of future results. The author and associated entities disclaim any liability for loss incurred as a result of the use of this material or its content.
The Part Nobody Talked About on the Way In
Let me explain what I mean.
Between roughly 2019 and 2022, a lot of real estate deals were structured around a very specific set of assumptions. Interest rates were historically low. Lenders were aggressive. And the business plans were built on a pretty straightforward formula: buy the property, improve it, raise rents, refinance or sell in three to five years at a higher valuation.
It made sense. And for a while, it worked beautifully.
But here’s what was baked into almost every one of those deals that most investors, myself included, didn’t spend nearly enough time thinking about: the debt had an expiration date.
Most of these deals used short-term, floating-rate debt or bridge loans. The kind of financing that gives you flexibility on the front end but assumes you’ll be able to refinance into something more permanent down the road. The whole plan depended on a future event going right, specifically, that interest rates would stay low enough or the property value would grow fast enough to make that refinance possible.
When rates went from 3% to 7%, that future event stopped cooperating.
Now you’ve got a property that’s performing well operationally, tenants paying rent, occupancy holding steady, but the loan is maturing and the math doesn’t work anymore. The refinance terms are dramatically worse than what was projected. The exit valuation hasn’t kept pace. And suddenly the operator is facing a gap they can’t close without more capital or more time.
That’s not a bad property problem. That’s a debt structure problem.
And it’s happening everywhere right now, even to experienced operators, even in strong markets.
I think about it like this. Imagine you bought a house that’s in great shape. Good neighborhood, solid tenants, everything works. But you financed it with an adjustable-rate mortgage that just reset, and your monthly payment doubled. The house didn’t change. Your income didn’t change. But the terms underneath you shifted, and now you’re squeezed.
That’s what’s playing out across thousands of deals right now at a much larger scale.
What This Cycle Is Actually Teaching Us
I had a conversation recently with a physician who’s been passively investing for about four years. Smart guy. Did his homework. He was in three syndications, all solid operators, all in growing markets. Two of those deals are now in some form of restructuring. Not because the properties failed. Because the loans came due at the worst possible time.
He told me something that stuck with me. He said, “I feel like I studied for the wrong test.”
And I think a lot of us feel that way right now. For years, the conversation in real estate investing circles was almost entirely about the asset. The market, the submarket, the rent comps, the value-add plan. And those things matter. But what I didn’t hear enough people talking about, and I’ll include myself in this, was the financing structure. How much leverage was being used. What kind of rate. What happens if the exit doesn’t go as planned.
Those questions feel obvious now. They weren’t obvious to a lot of us three years ago. Or maybe they were obvious, but they felt theoretical. Rates had been low for so long that the idea of them doubling felt like a stress test scenario, not a real one.
Here’s what I’ve noticed talking to physicians who are feeling uneasy right now. The discomfort isn’t really about one deal. It’s about trust. They did their due diligence. They picked good operators. They invested in solid markets. And they’re still getting emails they didn’t expect. That shakes something deeper than a balance sheet.
I get that. I feel it too.
But I think the right response isn’t to pull back from real estate entirely. It’s to get smarter about what you’re actually underwriting when you invest.
Because the deals that are holding up right now? They have a few things in common. They used fixed-rate or long-term debt. They didn’t over-leverage. They built in margin for the unexpected. They weren’t dependent on a perfect exit to make the math work.
Those aren’t flashy characteristics. They don’t make for exciting pitch decks. But they’re the difference between a deal that weathers a storm and one that gets swallowed by it.
I looked at a deal recently and the first thing I did was skip past the projected returns and go straight to the debt terms. Fixed rate. Conservative leverage. A loan that doesn’t mature for seven years. The projected IRR wasn’t the highest I’d seen that month. But I could actually see how the deal survives if things don’t go perfectly. That used to be a secondary consideration for me. Now it’s the first thing I look at.
I’m also thinking differently about returns in general. For a long time, the highest projected returns got the most attention. But a lot of those high projections were built on aggressive leverage and optimistic timelines. I’d rather take a more moderate return built on a structure that doesn’t need everything to go right.
That’s not a more conservative approach. I’d call it a more honest one.
I know this isn’t the most exciting thing to read. Nobody shares articles about conservative debt structures on social media. But if you’re a physician who’s been investing passively and you’re trying to make sense of what’s happening right now, this is the thing I’d want you to understand.
The properties aren’t the problem. The debt is.
And the physicians who internalize that distinction are going to make much better decisions in the next cycle. Not because they’ll avoid all risk, but because they’ll understand where the real risk actually lives.
That’s the part I wish someone had said more clearly a few years ago. So I’m saying it now.
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Peter Kim, MD is the founder of Passive Income MD, the creator of Passive Real Estate Academy, and offers weekly education through his Monday podcast, the Passive Income MD Podcast. Join our community at the Passive Income Doc Facebook Group.
